In-Plan Roth Rollovers

Notice 2013-74 expands the guidance provided in Notice 2010-84, explaining how in-plan Roth rollovers operate following the 2012 statutory change that allows all plan funds to be converted. 

The Evolution of In-Plan Roth Rollovers: 

• 2006: Roth 401(k) contributions were introduced by the Economic Growth and Tax Relief Reconciliation Act of 2001, for plan years starting after 12/31/05. 

• 2010-11: In-plan rollovers to Roth accounts were permitted by the Small Business Jobs Act of 2010, for distributions after 9/27/10. 

• Notice 2010-84:  provided guidance on in-plan Roth rollovers, including the limitation that the only amounts eligible for in-plan Roth rollovers were amounts that were immediately distributable (limiting the availability of this feature to terminated participants and participants at least age 59.5). 

• 2013: In-plan Roth rollover rules were liberalized by Congress in the American Taxpayer Relief Act of 2012, which added new subsection 402A(c)(4)(E). This legislative change expanded the availability of in-plan Roth rollovers by removing the limitation in Notice 2010-84 that the participant have reached age 59-1/2, or otherwise become eligible for a distribution. The expanded eligibility for in-plan Roth rollovers applies to transfers made after Dec. 31, 2012, in taxable years ending after that date.

New Guidance: Notice 2013-74 amplifies earlier guidance and answers several common questions affecting plan sponsors:

• Only vested amounts can be rolled to the in-plan Roth account.

• In-plan Roth rollovers are only allowed if the plan document permits them. 

• The plan document can direct which money types are available for in-plan Roth rollovers.

• The plan document can limit the frequency of in-plan Roth rollovers.

• No withholding will be applied to in-plan Roth rollovers.  The employee making the in-plan Roth rollover owes taxes on the rollover amount and may need to increase his or her withholding or make estimated tax payments to avoid an underpayment penalty.